Finance: How Are Risks and Rewards Related?

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in ten billion that you win, then it's a bad bet, ten times over.

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Transcript

00:28

three or four half swing strokes to reach the green if you're cool with [golfer taking multiple shots and reaches the green]

00:33

shooting 28 over par or a hundred today well then maybe these half

00:37

swings are your ticket to happiness sometimes a score of a hundred wins the [golfer stood beside a scoreboard with a score of 100]

00:41

purple turkey that is you are taking less risk and are totally fine being

00:46

rewarded less all right now meet Corey Mcilshmoop he wants the big score

00:52

lots of strokes under par and he's willing to risk a lot to get there. His [Corey Mcilshmoop swinging a golf club]

00:57

ball either goes 340 yards and lands on the green setting him up for an eagle

01:02

putt it goes out of bounds with a vengeance there, ouch.. all right well on

01:06

the investing golf course like this one generally speaking riskier investments [golf course made into an investment course]

01:10

are things that don't have a long track record of success like compare the

01:15

coca-cola company with a new IPO of whatever.com what are the odds that in [a comparison of coca cola vs. whatever.com]

01:20

five years people are still drinking sugared fizzy water well pretty good

01:25

right now how about the odds of a billion people still being enamored of [myspace and whatever.com with number of people liking the website rising]

01:29

whatever com yeah much less clear like less clear than crystal pepsi.. Risky can

01:35

also mean private investments in two kids plugging away inside of a garage [Kids working on a project in a garage on laptops]

01:39

and yeah they could be Larry and Sergey making Google but more likely they could

01:44

be buzz and billy-bob making a whoopee cushion that pushes the bounds of

01:47

realism yeah..risky can also be just a company that doesn't pay a dividend if a

01:54

company does pay a divy, you at least get the dividend back each year as you slowly get your

01:58

initial investment returned to you you can make money even if the stock price [company's share price, dividend and yield]

02:02

doesn't go up in the case where stock pays no dividend your instead betting [person puts chips onto a roulette table]

02:07

everything that the company will just grow but growth companies with no

02:11

dividend while that's all well and good think things

02:13

like Facebook and Amazon and uber but if the company doesn't grow well then bad [whatever.com falling on the floor]

02:18

things happen you've got no dividend and the share prices declined and so the

02:23

basic idea is that the more risk you take the more reward you can have in the [man playing golf and eagle swoops and picks up ball]

02:27

same lack of reward you can have as well and every now and then you get one of

02:31

the three hundred forty yard drive to go in the hole which makes the risk totally [money falling next to a building of baby's first chainsaw]

02:36

worth it yeah because well you're never going to sit around telling your

02:39

grandkids about the time you shanked your drive 15 yards [grandad telling children a story about golf]